Why Cameron Never Stood a Chance Juncker Chosen Because It Was Simply Too Hard to Choose Anyone Else / The Wall Street Journal.

Why Cameron Never Stood a Chance

Juncker Chosen Because It Was Simply Too Hard to Choose Anyone Else

By SIMON NIXON

June 29, 2014 9:16 p.m. ET / http://online.wsj.com/articles/why-cameron-never-stood-a-chance-1404090960

David Cameron's opponents at home and abroad wasted little time putting the boot in. The European Councildecision to nominate Jean-Claude Juncker as the next president of the European Commission was undoubtedly a major defeat for the U.K. prime minister. Labour leader Ed Miliband said it showed Mr. Cameron was now "toxic" in Europe. Politicians and officials across Europe have lined up to say that Mr. Cameron only had himself to blame for his diplomatic isolation.

But Mr. Cameron's isolation needs to be seen in the wider European context. The truth is that the split between the U.K. and the rest of the EU was just one of many fault lines that the appointment of a new Commission president threatened to expose.

Potentially far more damaging were the splits between the euro-zone core and periphery, between big states and small states, between the rich north and poorer south and an institutional split between the European Parliament and the European Council which comprises EU leaders.

Mr. Juncker was chosen because it was simply too hard to choose anyone else. Opting for the non-confrontational, non-ideological, consensus-building veteran Brussels deal-maker allowed these other rifts to be swept under the carpet.

British officials complain that the process by which Mr. Juncker was appointed—he was the lead candidate of the European People's Party, which won more seats in the European Parliament than any other group—will politicize the commission, undermining confidence in its ability to carry out its regulatory duties fairly and independently.

Their problem, however, is that many Europeans actively want to politicize the commission and seized on this process as an opportunity to do so.

For some, this reflects a long-standing federalist agenda, an attempt to address the EU's supposed "democratic deficit" by enhancing the electoral claims of the Brussels institutions. But for many, it is an essential step towards changing a deeply unpopular euro-crisis response that has so far largely been dictated by Germany.

At the heart of that response has been Chancellor Angela Merkel's insistence that the long-term stability of the euro zone depends on each country taking responsibility for its own problems; risk-sharing has been limited to bailout loans that came with strings attached.

In this German analysis, the crisis was partly one of lost competitiveness, for which the solution was structural reforms; partly one of fiscal indiscipline, requiring austerity; and partly one of euro-zone credibility reflecting the weakness of the euro zone's Stability and Growth Pact. This has now been strengthened to include tougher oversight of national budgets and harsher sanctions for breaking the rules which are now triggered with greater automaticity.

Of course, this analysis has never been fully shared across the euro zone. For many, the euro zone's real credibility problem was that there was no mechanism to spread the costs of shocks. Without instruments to pool debt or allow fiscal transfers, countries have been forced into deep austerity, causing deep recessions that have left the euro zone on the brink of deflation.

According to this narrative, the solution is not tighter but looser fiscal rules, more "solidarity", and more measures designed to boost demand including increased "investment" and a more interventionist European Central Bank.

This is the agenda that France and Italy have been pushing aggressively in recent weeks. President François Hollande has dispatched former French finance minister Pierre Muscovici on a tour of the EU to drum up support for a "jobs and growth" program.

That mission has acquired added urgency as the French economy continues to fall behind its peers, making it more likely that France will fail to meet its fiscal targets.

French officials privately insist that even if this happens, Paris won't undertake further fiscal measures beyond the €50 billion ($68.24 billion) spending cuts over three years already promised.

Italian Prime Minister Matteo Renzi also has signalled he is opposed to EU rules requiring the country to reduce its government debt from close to 135% of GDP this year to 60% over 20 years.

With a Franco-Italian gun to her head, Ms. Merkel understand-ably chose the path of least resistance; Mr. Juncker's appointment allowed Europe's leaders to sign up to a platitudinous statement reaffirming their respect for euro- zone rules, their commitment to structural reforms and boosting competitiveness and the need to prioritize growth and jobs.

The real battle will now take place behind closed doors in Brussels, as the new commission fights over how flexibly those euro-zone rules should be applied to a range of policy areas including how debts and deficits are measured, how state aid rules and competition policy are administered and how EU budgets are spent.

For now, Ms. Merkel can claim that her vision of a euro zone based around national responsibility remains intact. It's still possible that the combination of structural reforms, a functioning banking system once the ECB completes its stress tests later this year, and a recovery in confidence will lift the euro zone out of its current low growth, low inflation trap, easing the pressure on the commission to soft-pedal the fiscal rules and invent new common debt-funded spending programs.

But that vision increasingly hangs in the balance: Evidence of austerity and reform fatigue is mounting. Spain last week announced an overhaul of the tax system that loosened fiscal policy; Portugal chose to forego its last bailout payment rather than introduce new fiscal measures to replace spending cuts struck down by the Constitutional Court; the Greek Supreme Court is also demanding the reversal of previous austerity measures while the government used part of its 2013 primary budget surplus to offer tax breaks to the army and police. In Italy, Mr. Renzi has so far delivered barely affordable tax cuts but no serious reform and Mr. Hollande's modest program for France is running into stiff parliamentary opposition. Elections loom in a number of crisis countries next year with reform-minded governments under pressure.

The risk is rising of an alternative scenario in which un-reformed economies continue to struggle to grow, debts continue to grow and pressure to pool those debts whether openly via new EU-level borrowing and spending programs or stealthily via a loosening of the fiscal rules and an ECB government bond-buying program becomes irresistible.

These were the treacherous waters into which Mr. Cameron plunged when he decided to turn Mr. Juncker's candidacy into an issue of principle.

Vital U.K. interests were at stake in this bid to strengthen the power of Brussels-based institutions at the expense of national governments. But nothing like as vital as the choices facing countries whose fortunes are yoked together in the euro. Mr. Cameron never stood a chance.